WATCH: TD Bank is warning the province’s deficit could become a long-term problem. But, it’s not just the price of oil that’s to blame. Reid Fiest explains.
EDMONTON — A report from TD Economics suggests Alberta could be looking at a larger budget shortfall than it’s been predicting up to this point.
The province is estimating a $7-billion gap on the assumption the price of West Texas Intermediate (WTI) oil will average less than $US65 per barrel through 2015.
Oil closed just below $US43 Wednesday.
TD’s report, released Thursday, contends that price will actually be closer to $US52 a barrel this year, rising to $US68 next year, which will add another billion dollars to that $7-billion budget shortfall estimate.
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“The lower price forecast suggests that without any actions, the budget shortfall could come in by as much as $1 billion higher than the government’s cited figure for fiscal 2015-16,” the report reads.
(Read the report in full below).
A month ago, Premier Jim Prentice and Finance Minister Robin Campbell promised the March 26 budget would include steep spending cuts of at least five per cent up to an effective cut of nine per cent across the board. However, the premier has since softened his budget messaging somewhat.
READ MORE: As budget looms, Prentice softening message on deep spending cuts
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However, the report credits the government for taking quick action.
“The Alberta government’s willingness to move sooner, rather than later, to tackle its fiscal challenge should be applauded. If left alone, deficits will rise, necessitating the need for even harsher medicine down the road.
“Many of the actions on the table are no doubt unappetizing, but stakes are high.”
READ MORE: Prentice says Alberta budget to be so radical, will demand mandate to implement
The report suggests the province should set an achievable deficit elimination timetable and use “thoughtful program redesign” over “slash and burn” type strategies. It says “focusing on tax reform (not just hikes)” deserves “careful consideration.”
It adds the province needs to shift its attention long-term on reducing reliance on non-renewable resources revenues to fund operational spending. It suggests those revenues should be used to build savings for the future.
And, even if oil rebounds, the report estimates the province could see a persistent structural deficit of between $4 billion and $5 billion. It explains that borrowing to fund these shortfalls could turn Alberta into a “net debt” province.
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